SLOANREVIEW.MIT.EDU SPRING 2020 MIT SLOAN MANAGEMENT REVIEW 45
chain or the reverse, without changing the core idea
of the venture, is called a pivot. The difference be-
tween a successful pivot and a failed strategy of
sticking with the wrong plan for too long often
comes down to how well that company prepared
for the possibility of Plan B.
Pivots can occur in either direction. For instance,
strategy and innovation researcher Matt Marx and
management scholar David Hsu^3 have documented
the case of Genentech, a biotech startup that was
founded with a view of cooperating with existing
pharmaceutical companies and licensing drug
prospects to them. Genentech did this with its break-
through technique for producing synthetic insulin,
which it licensed to Eli Lilly and Co. However, it also
had aspirations to make its own pharmaceutical
products. This involved garnering key regulatory
skills and marketing capabilities. By licensing prod-
ucts and learning from licensees, Genentech was able
to pivot beyond intellectual property development
within a decade of its founding.
In other cases, startups might pivot from disrup-
tion to a value chain strategy. In research with Marx
and Hsu,^4 I examined startup entry in the voice rec-
ognition software industry over an almost 50-year
period. We found that a number of startups first
entered and competed head-to-head with market
leaders — presumably on a disruption path — but
pivoted to becoming the incumbents’ partners.
Ironically, we found that startups that pivoted away
from disruption almost invariably did so because the
technologies they developed were in fact disruptive.
Why would a successful disruption lead anyone to
pivot away from a disruptive strategy and toward a
value chain opportunity? A technology disruption
may provide a clear strategic path for a startup, but an
incumbent might see the threat and opt to cooperate
rather than compete with the entrepreneur. That, in
turn, might end up as a win-win. The startup wouldn’t
need to fund an all-out battle with the incumbent but
could find common ground for cooperating while en-
ticing new customers with the improving technology.
This means that even if entrepreneurs start out on a
disruptive path, disruption might be forestalled as
incumbents see that cooperating is in their interests.
By adjusting their response to take advantage of the
new entry, the incumbents can funnel the disruptive
impact away from their own business.
Pivots can be planned (an entrepreneur may
compete initially to show incumbents the value of
cooperation) or unplanned (if a disruptive strat-
egy is not effective and warrants a change). Either
way, the possibility of pivoting means that any ini-
tial choice can be seen not as a final decision but as
a potential continued learning opportunity. Just
make sure you’ve walked through your pivot sce-
nario in enough detail to know when it’s time to
execute it.The Future
Disruption in an industry is a complex phenome-
non. Market leaders might be vulnerable, but it
takes others to make disruption happen. It is not a
foregone conclusion. There is a viable alternative —
a value chain approach.
The future of disruption likely depends not only
on technological opportunities and their charac-
teristics but also on the tools for experimentation
and understanding that allow entrepreneurs’
choices of technology, customer, organization, and
competition to coalesce into a coherent whole.
Disruption is an option. But there is a choice.Joshua Gans (@joshgans) is the Jeffrey S. Skoll
Chair of Technical Innovation and Entrepreneurship
at the University of Toronto’s Rotman School of
Management and serves as chief economist in the
Creative Destruction Lab. Comment on this article
at http://sloanreview.mit.edu/x/61302.REFERENCES- J. Gans, E.L. Scott, and S. Stern, “Strategy for Start-
Ups,” Harvard Business Review 96 (May-June 2018):
44-51; and J.S. Gans, S. Stern, and J. Wu, “Foundations
of Entrepreneurial Strategy,” Strategic Management
Journal 40, no. 5 (May 2019): 736-756. - E. Ries, “The Lean Startup: How Today’s Entrepreneurs
Use Continuous Innovation to Create Radically Successful
Businesses” (New York: Currency, 2011). - M. Marx and D.H. Hsu, “Strategic Switchbacks:
Dynamic Commercialization Strategies for Technology
Entrepreneurs,”Research Policy 44, no. 10 (2015):
1815-1826. - M. Marx, J.S. Gans, and D.H. Hsu, “Dynamic Commer-
cialization Strategies for Disruptive Technologies:
Evidence from the Speech Recognition Industry,”
Management Science 60, no. 12 (2014): 3103-3123.
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